Learn Why You Need A Forex Account To Trade

What is a Forex Account?

Forex Broker
A Forex Broker Is a Place To Keep Your Trading Balance And Enter Trades.

A forex account is an account used to hold and trade foreign currencies. Typically, you open an account, deposit money denominated in your home country currency, and then buy and sell currency pairs.

Your purpose, of course, is to make money on your trades. Unfortunately, the majority of forex traders lose money; the average length of a forex trading account is only about four months. This doesn't mean that the forex is a scam as some critics have maintained, but forex scams do abound.

 Making money on highly-leveraged currency trades is harder than it looks and, at a minimum, requires developing an expertise that many novice traders fail to acquire.

How You Open a Forex Trading Account

The requirements for opening a forex account have become simpler since the growth of online forex trading.  Today, Opening a forex account is almost as simple as opening a bank account.

First, of course, you'll need to find a forex broker -- all retail forex trading goes through and is managed by a brokerage, which may be a specialized forex broker or the same brokerage you use for stock market investing and trading. 

You'll need to fill out a brief questionnaire about your financial knowledge and trading intentions. You'll also need to provide an ID and the minimum deposit your forex account institution requires. That's it. You're now free to trade. Incidentally, many forex brokers will take your credit or debit card in lieu of cash, so, you really don't need to deposit any money at all -- not that this is a good idea.

If you don't have the cash now, how will you pay for losses later? Credit card debt carries high-interest rates. 

Forex Brokers

One of the aspects of currency trading that makes it riskier than trading in the stock market is that the entire currency trading industry is either lightly regulated or, with respect to some trades, not regulated at all.

A consequence of that is that unless you look carefully into the reputation of the forex broker you select, you may be defrauded. The very professional sounding CWM-FX brokerage, for instance, turns out to be one several dubious institutions created by a single trader about whom relatively little is known. What is known is that foreign exchange trading at CWM-FX was suspended in early 2015 after a police raid that ended with 13 arrests. Where has CWM-FX clients' money gone? The company's website offers only a brief apology for "the inconvenience," with no word about client investments or any assurance that they will ever see their money again.

There are two ways of avoiding this. One is simply to avoid specialized forex traders entirely and to trade with a general stock brokerage active in the U.S. and therefore regulated by the the U.S. Securities and Exchange Commission (SEC).

The other way to avoid inadvertently connecting with a fraudulent broker is to proceed very carefully when considering a specialized forex brokerage. Only open an account with a a U.S. broker with a membership in the National Futures Association. Use the NFA's Background Affiliation Information Center to verify the brokerage and its compliance record.

Even then, it's a good idea to choose a large, well-known forex broker like FXCM, which stands for Forex Capital Markets. FXCM, like almost all of the largest U.S. forex brokers, offers a free practice account where you can try out potential trades without risking your capital. Some other well-known U.S. forex brokers are CitiFX PRO, an affiliate of CitiBank, and thinkorswim. Don't be put off by the cute name: it's a division of  TDAmeritrade.  Before finalizing your search, compare commission rates. Transaction costs are an important factor in the profitability of trading activity.